OR18-9-000 White Cliffs Pipeline, L.L.C
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173 FERC ¶ 61,155 UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION Before Commissioners: James P. Danly, Chairman; Neil Chatterjee and Richard Glick. White Cliffs Pipeline, L.L.C. Docket No. OR18-9-000 OPINION NO. 573 ORDER ON INITIAL DECISION (Issued November 19, 2020) This order addresses briefs on and opposing exceptions to an Initial Decision issued on September 12, 2019 concerning the application for market-based rate authority of White Cliffs Pipeline, L.L.C. (White Cliffs).1 The Initial Decision found that White Cliffs lacks market power in the origin market and recommended that the Commission grant White Cliffs’ application. As discussed below, although we modify the Initial Decision’s findings regarding the product market, we affirm the Initial Decision’s finding that White Cliffs lacks market power in the applicable market and grant White Cliffs’ application for market- based rate authority. I. Background White Cliffs owns and operates a 527-mile common carrier crude oil pipeline system that consists of two parallel 12.75-inch pipelines capable of transporting crude oil from Platteville, Colorado, and Healy, Kansas, to Cushing, Oklahoma (White Cliffs Pipeline).2 White Cliffs is a joint venture majority-owned by Rose Rock Midstream, L.P., a wholly-owned subsidiary of SemGroup Corporation.3 At the time White Cliffs filed for market-based rate authority, White Cliffs Pipeline had a capacity of 185,000 barrels per day. During the pendency of this case, White Cliffs converted one of its pipelines from transporting crude oil to transporting natural gas liquids, which reduced 1 White Cliffs Pipeline, L.L.C., 168 FERC ¶ 63,033 (2019) (Initial Decision). 2 Id. P 5. 3 Id. P 7. Docket No. OR18-9-000 - 2 - the capacity of crude oil that White Cliffs Pipeline can transport from 185,000 barrels per day to approximately 95,000 barrels per day.4 II. Procedural History On December 22, 2017, White Cliffs filed an application for authorization to charge market-based rates for the transportation of crude oil in its proposed origin market of the Niobrara Shale Region and its proposed destination market of Tulsa-Bartlesville, Oklahoma.5 The Liquids Shippers Group6 (LSG) filed a protest to White Cliffs’ application. On May 17, 2018, the Commission issued an order finding that White Cliffs lacks market power in the destination market and therefore granting White Cliffs market-based rate authority for the destination market.7 However, the Commission found that evidence in White Cliffs’ application was insufficient to find that White Cliffs lacked market power in the origin market, and the Commission set that issue for hearing.8 The hearing commenced on March 19, 2019. On September 12, 2019, the Presiding Administrative Law Judge (ALJ) issued an Initial Decision finding that the appropriate origin market is the tight-oil producing portion of the Denver-Julesburg Basin (DJ Basin) and that White Cliffs lacks market power in this origin market. Because the Commission already determined that White Cliffs lacks market power in the destination market, the ALJ recommended that White Cliffs’ application be granted. On October 15, 2019, White Cliffs, Trial Staff, and LSG filed briefs on exceptions. On November 4, 2019, those same parties filed briefs opposing exceptions. III. Discussion As discussed below, we address the exceptions to the Initial Decision’s findings regarding: (1) burden of proof, (2) the product market, (3) the geographic origin market, 4 Joint Statement of Stipulated Facts at 6. 5 Initial Decision, 168 FERC ¶ 63,033 at P 8. 6 In this proceeding, the Liquids Shippers Group comprises ConocoPhillips Company; HighPoint Resources Corporation; Kerr McGee Oil & Gas Onshore, LP; and Noble Energy, Inc. 7 White Cliffs Pipeline, L.L.C., 163 FERC ¶ 61,120, at P 2 (2018) (Hearing Order). 8 Id. P 25. Docket No. OR18-9-000 - 3 - (4) the competitive alternatives to White Cliffs in the origin market, and (5) market power measures. Burden of Proof 1. Brief On Exceptions In conducting the market power analysis, the ALJ relied primarily on evidence and analyses proposed by Trial Staff, instead of White Cliffs. LSG argues that by relying upon evidence presented by Trial Staff the Initial Decision failed to place the burden of proof on White Cliffs to support its request for an exemption from the generally applicable indexing methodology in order for White Cliffs to charge market-based rates. LSG claims that this burden is imposed upon the applicant by the Commission’s market- based rate application requirements in 18 C.F.R. part 348 and Order No. 572, the Final Rule that adopted those regulations.9 2. Brief Opposing Exceptions White Cliffs challenges LSG’s claim that White Cliffs failed to satisfy the legal burden to demonstrate that it lacks market power.10 3. Commission Determination We reject LSG’s argument that by relying on evidence submitted by Trial Staff, the Initial Decision erred by failing to place the burden of proof on White Cliffs. The pipeline has the burden of proof in a market-based rate proceeding. However, the ALJ and the Commission may rely upon the full record when making a market-based rate determination. The Commission’s regulations at part 348 contain no requirement that the applicant pipeline, and only the applicant pipeline, may present evidence of a lack of market power. The regulations simply require that a pipeline filing an application for 9 LSG Brief on Exceptions at 7-11 & n.22 (citing Market-Based Ratemaking for Oil Pipelines, Order No. 572, FERC Stats. & Regs. ¶ 31,007 (1994) (cross-referenced at 69 FERC ¶ 61,103), aff’d sub nom. Ass’n of Oil Pipelines v. FERC, 83 F.3d 1424 (D.C. Cir. 1996)). 10 White Cliffs Brief Opposing Exceptions at 10. Docket No. OR18-9-000 - 4 - market-based rate authority provide certain information.11 White Cliffs provided this information in its filing, but the Commission determined that the evidence was “insufficient to permit a determination that White Cliffs lacks market power in the origin market.”12 Once the issue is set for hearing, the ALJ and the Commission can use all evidence submitted by all parties to support their findings. As noted by the ALJ, the Commission has previously considered and relied upon evidence submitted by parties other than the applicant pipeline, including evidence submitted by Trial Staff.13 We see no difference in the proceeding here. Accordingly, we find that the Initial Decision did not fail to place the burden on White Cliffs by considering evidence presented by participants other than the pipeline. Product Market Definition 1. Initial Decision The Initial Decision found that the relevant product market for White Cliffs is the transportation or absorption of light crude oil.14 In making this determination, the ALJ explained that almost all of the crude produced in the production fields served by White Cliffs, including the Wattenberg Field and tight-oil portion of the DJ Basin, is light crude.15 Additionally, the ALJ found that all the non-light crude produced in these 11 The information includes: (1) the geographic market in which applicant carrier seeks authority, (2) the product market in which the applicant carrier seeks authority, (3) the applicant carrier’s facilities and services, (4) competitive alternatives to the applicant carrier’s facilities in the relevant geographic and product markets, (5) potential competition, (6) maps, (7) market power measures, (8) other factors, and (9) prepared testimony in support of the application. See 18 C.F.R. § 348.1(c) (2020). 12 Hearing Order, 163 FERC ¶ 61,120 at P 25. 13 Initial Decision, 168 FERC ¶ 63,033 at P 25 (citing Seaway Crude Pipeline Co. LLC, Opinion No. 563, 163 FERC ¶ 61,127, at P 24 (2018); Williams Pipe Line Co., Opinion No. 391-A, 71 FERC ¶ 61,291, at 62,148 (1995); Guttman Energy, Inc. v. Buckeye Pipe Line Co., L.P., Opinion No. 558, 161 FERC ¶ 61,180, at PP 214, 221, 279- 281, 303 (2017) (Guttman)). 14 Initial Decision, 168 FERC ¶ 63,033 at P 34. 15 Id. P 63. Docket No. OR18-9-000 - 5 - geographic areas is aggregated with light crude and then shipped as light crude.16 Because light crude so predominates in the DJ Basin, the ALJ therefore concluded that cross-elasticity (i.e., the consideration of other alternative products that could limit White Cliffs’ ability to exercise market power)17 is not a relevant factor.18 Relying upon Seaway I, the ALJ stated that only products produced in the relevant production fields can be considered under Commission policy.19 However, the ALJ went on to consider cross-elasticity “out of an abundance of caution.”20 Based upon this analysis, the ALJ determined that “the weight of the evidence does not show cross-elasticity of demand between the transportation . of light and heavy crude in [the] origin market.”21 In conducting this analysis, the ALJ noted that White Cliffs only offers a tariff rate to transport light crude oil and that White Cliffs has never shipped a dedicated batch of heavy crude.22 The ALJ noted that although White Cliffs could modify its pipeline system to allow for transport of heavier grades of crude, there is no evidence that White Cliffs plans to modify its system at this time.23 2. Briefs On Exceptions White Cliffs and Trial Staff argue that the Initial Decision erred in defining the product market as the transportation of only light crude oil, rather than all grades of crude oil.24 White Cliffs claims that the Initial Decision’s conclusion ignores the fact that refineries located in both the origin and destination markets can process both light and heavy crude.